This report focuses on the financial implications of the cement sector’s future in the context of climate transition scenarios. The report provides a how-to guide for sector-specific scenario analysis and demonstrates its relevance in assessing future financial performance.

The report outlines how to conduct a scenario analysis for the cement sector under the constraint that asset-level data is not globally available with sufficient quality.

The report is inherently about the social and governance issues since it examines climate impacts on the financial performance of cement companies in terms of earnings before interest, taxes, depreciation, and amortization (EBITDA). It aims to support companies in transitioning towards a low carbon economy. The report’s findings can inform ESG analysis applying task force on climate-related financial disclosures (TCFD) recommendations for non-financial reporting.

Financial climate scenario analysis for cement – context

This section aims to support an understanding of the cement industry, the objectives of the analysis, and the readers’ guide. Concrete companies face risks and opportunities due to climate change, and the insights provided in the report can support scenario analysis, building towards comparative evaluation of companies, sectors, and regions, in particular, the energy and materials sectors. This section includes useful data and informative calculations for analysis and the big picture.

How to interpret and integrate the results

This section provides an overview of traditional information sources and a questionnaire to assess climate risks and opportunities’ materiality. The analysis aims to understand climate scenarios’ business determinants via different volumes such as prices and costs. The section also covers the transition capacity of companies and a conversion catalogue that includes how companies’ asset configurations can enable a financially beneficial transition. The findings indicate that scenario analysis can be complementary to traditional company analysis.

Applying the results

This section provides an equity analyst’s decision-tree example on how to make the most of scenario analysis to attribute countermeasures and opportunities. The analyst can interpret the climate change scenarios’ credibility and probability, the risks and opportunities’ materiality, how soon the risks and opportunities materialise, and how much adaptation is already built into companies’ structure to survive the transition. The results, when contextualised, may inform qualitative assessments of non-climate related drivers and the individual production assets’ adaptability in a scenario-based price environment.

Recommendations

The report recommends companies in the cement sector to adopt scenario analysis tools that enable the assessment of climate scenarios’ exposure and resulting financial risks and opportunities, for example the climateXcellence tool. Scenario analysis frameworks can improve financial risk evaluations, provided they’re applied appropriately, continuously updated, and incorporate company-level adaptation measures. The report can also support investors in performing the analysis by providing tools and guidelines.